Consider two countries, Vietnam and the United States which produce two agricult
ID: 1179460 • Letter: C
Question
Consider two countries, Vietnam and the United States which produce two agricultural goods, rice and wheat. The table below shows the total amount of acreage devoted to farming in each country and how much rice or wheat can be grown if one acre of land is devoted to rice or wheat production.
What is the opportunity cost of producing rice in US??
" " producing wheat in US??
" " producing rice in Vietnam?
" " producing wheat in Vietname??
Total acreage
Rice grown on 1 acre
Wheat grown on 1 acre
United States
500,000 acres
100 lbs.
500 lbs.
Vietnam
100,000 acres
1000 lbs.
100 lbs.
Confirm the existence of comparative advantage by computing opportunity costs and filling in the table below. What is the pattern of comparative advantage?
Opportunity Cost
Rice
Wheat
United States
Question 1
Question 2
Vietnam
Question 3
Question 4
Total acreage
Rice grown on 1 acre
Wheat grown on 1 acre
United States
500,000 acres
100 lbs.
500 lbs.
Vietnam
100,000 acres
1000 lbs.
100 lbs.
Explanation / Answer
In the United States: For 1lb of rice grown , they have to forego 5lbs of wheat. In better terms, lets say the US uses 1 acre of land to grow rice. They would be able to produce 100 lbs of rice. However, had they grown wheat in that 1 acre land, they would have been able to produce 500 lbs of wheat. Now in vietnam, lets say they use a piece of 1 acre land to grow wheat. They would be able to grow only 100 lbs, whereas had they grown rice they could have produced 1000lbs.
Thus, what we can clearly observe is that: the United states has a comparative advantage in WHEAT.
Vietnam has a comparative advantage in RICE.
So the opportunity costs in the US are:
Question 1: 100 lbs RICE = 500lbs WHEAT
1lb RICE = 5 lbs WHEAT
thus opportunity cost for 1lb of rice: 5lbs of wheat
Question 2: 100 lbs RICE = 500lbs WHEAT
0.2 lbs RICE = 1lb WHEAT
thus opportunity cost for 1lb of wheat: 0.2lbs of rice
Question 3: 1000 lbs RICE = 100 lbs WHEAT
1lb RICE = 0.1lb WHEAT
thus opportunity cost for 1lb of rice: 0.1lbs of wheat
Question 4: 1000 lbs RICE = 100 lbs WHEAT
10lbs RICE = 1lb WHEAT
thus opportunity cost for 1lb of wheat: 10lbs of rice
So if the US specializes in WHEAT and Vietnam in RICE they could produce, i.e each country uses all of the available land to grow only one crop: wheat or rice:
500lbs * 500,000 WHEAT and 1000lbs * 100,000 RICE
which is : 250,000,000 lbs wheat and 100,000,000 lbs rice in total, the maximum possible production.